A study commissioned by the parliamentary left group in the European Parliament, GUE/NGL, examines the European Commission's proposal of introducing a Common Consolidated Corporate Tax Base (CCCTB) in the EU: ‘Assessing the impact of the C(C)CTB: European tax base shifts under a range of policy scenarios’.

The results of the study show that the planned reform would lead to massive shifts of the tax bases of Member States. The European Parliament will vote in February on the Commission's proposal to reshape the corporate tax system. Martin Schirdewan (DIE LINKE.), GUE/NGL's shadow rapporteur for the CCCTB, and Fabio De Masi (DIE LINKE.), former Vice-Chair of the European Parliament's 'Panama Papers' Inquiry Committee (PANA) and now Member of the German Bundestag, comment on the results of the study:

Martin Schirdewan: „EU Member States lose hundreds of billions of Euros every year thanks to the dirty tax tricks of Apple, Google, Nike and Co. The Paradise Papers are just the latest leak that bears witness to this. Implementing a system of unitary taxation within the EU could be a viable tool in putting a halt to the tax dumping of multinationals.”

“The Commission’s proposal, however, falls short of achieving this. Our study shows that allowing corporations to offset their losses across countries without at the same time demanding the apportionment of profits will lead to a massive reduction of the tax base. Furthermore, by limiting the scope of the directive to EU Member States, the Commission incentivises profit shifting outside of the EU. If the CCCTB is to be successful, it has to take into account the global profits of multinationals and has to be combined with an effective minimum tax rate of 25 per cent.“

Fabio De Masi, Member of the German Bundestag, adds: „The system of transfer pricing, which is used to ship profits like Amazon packages across country borders, does not work. Unitary taxation, which calculates profits on the EU level and apportions them to Member States according to economic activity, would in theory be a good thing. The devil, however, is in the detail: The envisaged EU wide loss offsetting will lead to an enormous reduction of the tax base.”

“But only heaven knows if the apportionment of profits will ever happen, as this will require the approval of all EU Member States and without effective minimum tax rates, tax rate competition will only intensify. The ‘Jamaica parties’ (CDU/CSU, Greens, FDP) only agreed on the harmonisation of the tax base – without the apportionment of profits. That is the most harmful option. It would be better to tax all dividends, interests and licence fees flowing out of Germany at the source. This would also increase the pressure on the Netherlands & Co. to stop blocking sensible European solutions.“

About the study

The study 'Assessing the impact of the C(C)CTB: European tax base shifts under a range of policy scenarios' was commissioned by parliamentary group United European Left / Nordic Green Left (GUE/NGL). The authors of the study are Alex Cobham (CEO Tax Justice Network), Petr Janský (Charles University Prague), Chris Jones and Yama Temouri (both Aston Business School, UK). The study can be downloaded here.

New research into the European Commission’s corporate tax proposals has unveiled loopholes that would allow multinationals to keep shifting their profits abroad, depriving EU citizens of billions of euros in tax receipts.

The study* looks at the ‘Common Consolidated Corporate Tax Base’ (CCCTB) proposal and its likely impact on member states’ corporate tax bases in a range of scenarios.

The C(C)CTB would create a single set of rules for how EU corporations would calculate their taxes within the Union, and thus impact significantly on member states’ corporate tax base in future. It is currently under negotiations in the European Parliament ahead of a vote by MEPs next February.

The research finds that the CCCTB would result in a major redistribution of tax base among member states – at the expense of those members positioned aggressively as profit-shifting hubs.

One problem highlighted in the report is that profit-shifting outside of the EU is not addressed by the CCCTB, and the authors call for a worldwide approach so that profit-shifting within and out of the EU can be accounted for.

The study also describes the plans to push through CCCTB as irresponsible as it relies solely upon the insufficient data from private databases, whereas more reliable data from country-by-country reporting will be released in due course.

A number of these concerns have already been included in the draft recommendations of the European Parliament’s Inquiry Committee into the Panama Papers scandal. The Parliament itself will vote on the adoption of the committee's recommendations on 13th December.

“First and foremost this report shows the alarming limitations of the data that have been used by the Commission and other sources in estimating the impact of the CCCTB proposal on member states’ tax revenue. I fully support the call made by these academics for policymakers to address this by using the more comprehensive data resource created by the introduction of an OECD standard for country-by-country reporting when it is available – and the finding that taking major policy steps without such analysis would be deeply irresponsible.”

“This report also confirms my key concern regarding the CCCTB proposal in that member states are being asked to transfer further powers to the Commission in exchange for the promise that this new system will end the ability of multinationals to shift profits. But shortcomings in the proposal mean this goal is unlikely to be achieved. This analysis finds that the proposal as it currently stands would result in a significant decline in the corporate tax base," concluded the Irish MEP.

Portuguese MEP Miguel Viegas also says the CCCTB proposal leaves a lot to be desired:

“This proposal for the CCCTB has been blocked since 2011 as it never acted in the interest of multinational companies. Although this new version differs a lot from the initial idea, these two proposed directives carry no substantial improvements, and the situation therefore remains unchanged and may even get worse.”

"As the study indicates, more research is necessary to achieve the best formulas for profit allocation. Moreover, the directives must ensure a worldwide application and not only those within the EU.”

You can see what one of the co-authors of the report, Alex Cobham from Tax Justice Network, has to say here.

*Commissioned by the European United Left/Nordic Green Left in the European Parliament and written by the NGO 'Tax Justice Network'